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Options When Appraisal Comes in Low

We have a highly skilled & fair appraisal panel, but in today’s hot housing market, sale prices are sometimes above the value an appraiser can fairly attribute to a home.

Here are a buyer’s options when an appraisal comes in lower than the purchase price:

1. Renegotiate a price reduction with the seller. This option is rarely viable in a competitive market like today’s, when sellers have ample back-up offers.

2. Bring in the extra cash necessary to make up the appraisal shortfall. This option too is often not viable because buyers lack sufficient cash. Lenders will only lend against the appraised value, and not against the contract price. If an appraisal comes in $25,000 under contract, buyers have to bring in that $25,000 over and above their original down payment.

3. Rebut the appraisal. This approach has been surprisingly effective lately, as long as there is adequate data to support the rebuttal. Appraisers and appraisal companies are not as busy as they were in previous years, and are therefore more willing to take time to evaluate rebuttals and change values when justified.

4. Order an entirely new “rush” appraisal. This is something that is very unique to JVM, as we are the only lender that can effectively ignore poorly done appraisals, and we are definitely the only lender that will readily eat an additional $700 “rush appraisal” fee in order to help you close a transaction.

5. Change financing to a lower down payment option, to free up cash to make up the shortfall. For example, a buyer planning to put down 20% on a $500,000 purchase could instead put down 10% if the appraisal comes in at $450,000. This buyer could then get 80/10/10 financing, and be “out of pocket” about the same amount he would have been out originally if the appraisal came in at value. Buyers can also switch to FHA financing and only come in with a 3.5% down payment. We have performed these “financing switches” many times to salvage transactions when appraisals come in low.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646